Polypropylene Market Update in North America, July 23, 2007

24-Jul-07

Volume: Average Price: High and holding The spot Polypropylene market was mostly steady with a firm undertone this past week. We had a good flow of offgrade railcars and those prices edged higher. Domestic Generic Prime cars were available in the low $.60s/lb. With Propylene monomer still firm, producers are holding prices of bulk Homopolymer export cars in the high $.50s/lb, which makes it difficult to transact. On the other hand, exporters with already bagged inventory, can get some deals done at the price. Lack of refinery capacity has driven gasoline (RBOB) prices higher during the spring and into the summer. This has created a very competitive alternative demand (octane booster) for Propylene monomer. The US Polypropylene market has been struggling with high feedstocks costs that had once showed signs of abatement before resurging again. Resin production margins have held at a reasonable, but minimal spread over feedstock costs. Polypropylene producers will do their best to keep upward pressure on the spot resin market, with particular interest in finally decoupling contract resin prices from their direct relationship to contract monomer costs. However, for much of the past 3 quarters, where contract monomer has gone, Polypropylene contracts have followed. Since July PGP contracts settled $.0075/lb higher, we anticipate resin contracts to also settle modestly higher, despite Polypropylene producers intent to raise contract prices by a full $.03-.04/lb for each July and August. The Polypropylene market is already hanging right around historic highs (except for the post-hurricane market). With US processors choking at these prices, it seems unlikely that domestic demand alone could spur a strong rally to take the market deep into the $.60s/lb. If we do get there, it would likely be on the back of a major export initiative. European buyers are finding US resin to be quite competitive at $.60/lb, well that is when converted to Euro/MT - which is at an exchange rate exceeding US $1.38 to purchase a single Euro. (The Plastics Exchange)